trade policy japan

Japanese trade policy and the prospects of FTA’s,

TPP

Tengis Bat-Ulzii1

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Contents1. Trends in foreign trade & investment

• Trade balance, exports, imports • FDI inflow, outflow, net• Value added • Tariffs

2. Trade policy review• General policies• Current FTA's• Bi and multilateral activities• Agriculture protection

3. FTA's to boost economic growth in Japan• CJK FTA• EU-Japan FTA• TPP

4. Conclusion

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1. Trends in Trade & Investment• Trade in goods and services (2014)• Exports 913 billion US$ (ranked 4th)• Imports 947 billion US$

• Trade deficit of 34 billion US$

• FDI flow • Inward inflows of only 2,3 billion US$ in 2013.• FDI stocks below 4% of GDP• Outward flow of 135 billion US$ in 2013 (ranked 2nd )

According to OECD

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Trade in goods and services

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Trade in goods and services (exports)

Source: OECD DATABASE

Exports forecast

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Source: MIT

Japan: Exports by category 2013

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Trade in goods and services (imports)

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Trade in goods and services (imports)

Source: MIT

Japan: Imports by category 2013

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Trade in goods and services (Terms of Trade)

Terms of trade are defined as the ratio between the index of export prices and the index of import prices.


Terms of Trade

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Trade in goods and services (Terms of Trade)

J-Curve

Terms of trade are defined as the ratio between the index of export prices and the index of import prices.

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Net Trade 2014

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Trade in goods and servicesDomestic value added in gross exports

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Trade in goods and services2009 import content of exports

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Trade in goods and servicesmodest increase in Japan’s export volumes in last half of 2014

Source: Thompson Reuters Database.

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FDI inflowFDI inflows (Mill. USD)


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FDI inflow


FDI inflows (mil. USD)

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FDI inflowFDI inflows (% of GDP)


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FDI inflow


Key factors that hindered FDI

• Low level of corporate mergers and acquisitions, a key channel for FDI• High corporate income tax rate• Lack of clarity and accountability in Japans corporate governance framework• An unclear regulatory environment• Inflexible employment and termination rules for labor and the lack of mid-

career mobility• Rules restricting the entry of foreign workers

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FDI outflowFDI flow outward (mil. USD)


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FDI outflowFDI flow outward (mil. USD)


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FDI outflowFDI Flows outward (% of GDP)


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2. Trade policy review• Look at key recommendations from OECD

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2. Trade policy review• Japan's trade policy under Abenomics

• extending its network of economic partnership agreements (EPA’s)• Enhance transparency of economic policies• Reinforce competitiveness

• strategic approaches to emerging economies to support expansion by Japanese enterprises, export infrastructure and systems, and to secure supplies of resources

• Promoting FDI into Japan

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Japan EPA’s• Currently 13+1 EPA’s concluded.

• Bi and multilateral activities outside FTA• APEC• ASEM• US• EU• Russia• China• Republic of Korea• India• Africa• MERCOSUR (south American bloc)

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Japan EPA’s• Japan aims to increase trade under RTAs from 19%2013

to 70% in 2018• Japan has excluded some sensitive commodities• FTA with Australia significant • Agriculture problem

• Average age of rice farmers 68.5, • Chart for Producer support estimate (also

consumer spending is 1.8 times what it would have been without it)

• Decided to phase out prod. Quotas for table rice by FY2018 and to abolish direct payments for rice in 2018

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Agricultural protection

Source: OECD Database

Producer protection ratio 2014

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Source: OECD Database

Producer support estimate, % of gross farm receipts, 2014

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Source: WTO

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Agricultural protection• Why?• Japans agricultural conundrum

• Agricultural sector is small, less than 0.9% GDP and 4.5% of population• Central Union of Agricultural Cooperatives, JA-ZENCHU

• Single most powerful special interest group (10 mill. Members, $532bill. )• Demand

• Concentrated benefits (farmers) vs. diffused costs (consumers).• Farmers have strong incentive to keep protection.

• Supply• Japanese politicians to support agri. In exchange for votes.• Very little to loose not supporting consumers.

• Thus for politicians Marginal benefit exceeds Marginal cost.

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3. FTA’s to boost economic growth in Japan• China-Japan-Korea (CJK) FTA• EU-Japan FTA• TPP

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• In 1999, 3 parties agreed to hold yearly trilateral summits (sideline of ASEAN+3)

• Official study started in 2009 • Possible building bloc for a

regional FTA• Beneficial for all 3 parties

• Put pressure on agri. and fishery in Japan and Korea, while boosting higher technology in manufacturing

• Put pressure on tech. intensive manufacturing sectors, while boosting agri. And labor intensive manufacturing

3. FTA’s to boost economic growth in Japan:CJK FTA

Source: World Bank 2012

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Why is it moving slow?• 3 countries differ in stages of economic

development and technology• Lobbying groups• Japan’s preference to treat China as a

non-market economy.• Regional tensions• Complicated and long process

Solutions?• A dual track approach• CJ FTA• JK FTA• CK FTA

A China-Korea FTA would be the most beneficial

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Political tension


China

KoreaJapan

More beneficial to Japan than KoreaTherefore, talks suspended in 2004

Mutually beneficial

US

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3. FTA’s to boost economic growth in Japan:

TPP

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TPP• 12 countries accounting to around 40%

of World GDP• Agreement was reached on 5 October

2015 after 7 years of negotiations. • Lots of criticism around the world.• Investor-state dispute settlement• Medical sector• Intellectual property rights• Inequality• Environment issue

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TPPGoals:• Promote economic growth• Support the creation and retention of jobs• Enhance innovation, productivity and

competitiveness • Raise living standards, reduce poverty• Promote transparency, good governance • Enhanced labor and environmental protections• Early ambitions to reach 98~99% trade

liberalization

Leaders and representatives of the participating countries

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TPPProspects for Japan• Tightening US-Japan relationship• Boost in Abe’s long forgotten 3rd “Arrow”• Agricultural sector reforms• Encourage SME’s• Infrastructure• Consumer spending• etc

Current Concerns:• Political issue• Still, ratification is needed• Again, agriculture…• 2016 summer election• Voting power higher

in rural areas!

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US-Japan impact• Currently 60% of tariffs below 5% • U.S to abolish agriculture, chemical

and apparel tariffs immediately.• Japan to abolish textiles tariffs

immediately• Both delay liberalization on protected

sectors• US dairy in 20Years• US trucks in 30Years• JP beef in 16Years

3. FTA’s to boost economic growth in Japan:TPP

• Agricultural impact• 81% of 2328 agr., Forestry and

fishery products• Higher than any FTA before• Lower than other TPP participants• Only 30% of “sanctuary” five• No change in Rice

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Source: TPP tariff schedules; trade data from UN Comtrade.

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TPP for JapanEconomics• Agricultural reforms• Encourage SME’s• Increase FDI• Increase demand for infra.• Boost in agri., fishery exports• Increase in consumer spending• Tourism• Automotive industry (81% of auto

parts duty-free, 2,5% duty on cars to US in 25Y starting in 15Y)

• Broadcast exports 3x

Politics

• About 49~53% approved of TPP• Good timing for Abe’s political struggle, also

considered a victory• Agripolitics

• Boost in 3rd Arrow• Study in 2012 suggests:

• Japan will gain the most• 119billion$ added to exports by 2025• 14.4% increase in exports• GDP by 0.66% annually (as much as

1.6%)• 3 Trillion Yen decrease in agri. • Additional measures needed to max.

profits from TPP• Another study by MAFF suggests:

• No dramatic rise in imports• The rest will have Limited or no impact• Prices may fall in domestic market

• Possible hedge against China

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4. Conclusion• Abe’s 3rd Arrow• Still ratification is needed, so is TRANSPARENCY • Agricultural sector needs reforms• Overall effects of the TPP seems promising enough, could be a good

way to achieve higher productivity and innovation in Japan.• TPP and further FTA’s are vital to the revival of Japan

trade policy japan

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